MPs have hit out at the slow progress of audit reforms, including establishing the successor body to the Financial Reporting Council (FRC), accusing the government of dragging its feet on the changes promised in the wake of a series of high profile corporate failures and industry reviews
The Business, Energy and Industrial Strategy (BEIS) select committee has heavily criticised the government’s response to its report on the collapse of Thomas Cook, a year after the travel company failed.
In the original findings from its Thomas Cook inquiry, published in October 2019, the BEIS committee expressed disappointment the government had not pressed ahead with audit reforms and brought forward legislation to replace the FRC with the Audit, Reporting and Governance Authority (ARGA).
In its response to the committee report, which has only now been published, the government says ‘comprehensive proposals, and legislation to create the new ARGA will follow as soon as Parliamentary time allows’, but does not provide a timetable for this process.
Darren Jones, BEIS committee chair, said: ‘Recent audit scandals highlight the need for the government to tackle this issue as a matter of urgency.
‘At a time when businesses are facing tough trading conditions and when their balance sheets are under significant pressure, it’s important investors and other stakeholders can have confidence in audits.
‘The Secretary of State’s evidence to the BEIS committee last week failed to give a date for when primary legislation would come forward on audit reform.
‘ While the government has a series of priorities at the moment, given the importance of audit and the fact the department already has a raft of practical audit measures sitting on its desk gathering dust, we should expect the business department to show far more urgency to help drive through the reforms needed on audit and on corporate governance.’
The BEIS report on Thomas Cook included a number of recommendations on corporate governance, executive pay and bonuses, and audit reform. It was published against the background of the Brydon review of audit, the Competition and Markets Authority review and the Kingman review of the FRC.
The government’s letter stated: ‘As the committee’s conclusions acknowledge, standards of audit and corporate governance have come under the spotlight on too many occasions.
‘That is why the government commissioned three major reviews covering audit regulation, the audit market and the audit product itself. The last of these reported in December.
‘The reviews are interlinked, and we are now developing a coherent reform programme that takes account of all of their recommendations.
‘We will respond with comprehensive proposals, and legislation to create the new ARGA will follow as soon as Parliamentary time allows. In many areas we do not need legislation and where that is the case we are making progress with implementation.
‘Our goal is to ensure that the UK has a world leading corporate governance framework which commands the confidence of investors and the wider public and reduces the risk of avoidable and disorderly corporate failure’.
Government response to BEIS report on Thomas Cook is here: https://committees.parliament.uk/publications/1793/documents/17467/default/